What is the IRS Statute of Limitations on Tax Debt?
Last Updated: August 08, 2022 • 7 min read
Author: Zach L.
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10 years. Internal Revenue Code section 6502 states that the length of collection of tax liability is 10 years. This has few exceptions, but can be extended.
Tax debt can often grow out of hand, so you need to fight it at every turn. In the United States, you have laws that protect you from overzealous tax collectors. One of those protections is the statute of limitations. This article will dive into the statute of limitations on tax debt and what it means for you.
A statute of limitations is legislation that dictates the maximum timeframe for IRS tax debt collection. The IRS has a 10-year statute of limitations on all income tax debts. This means the IRS has 10 years from the date the tax was assessed to take action and collect it.
This is a general rule, and there are some exceptions to this rule. The IRS also has a ten-year limitations period on collection action. This means that if you have an unpaid debt to the United States government, the IRS will not be able to actively seek to collect it after a ten-year period. The IRS statute of limitations is applied to all types of taxes, including income taxes, estate taxes, gift taxes, and penalty taxes.
10-Years IRS Statute of Limitations
The statutes of limitations refer to the duration for the Internal Revenue Service to collect your unpaid taxes. This can include back taxes, taxes that were missed on a fraudulent return or an amended return, etc. But this doesn’t mean they’ll stop taxing you after the collection period is up. The statute of limitations won’t stop the IRS from assessing taxes but will stop any IRS collections effort after that period.
However, the IRS tries aggressively to collect the debt when the 10-year time limit is about to end. The time period isn’t absolute. It’s only if the IRS decides not to pursue collection strategies like liens or seizing assets (a process called levying). If the IRS levies you the amount of time may extend past 10 years, it all just depends on the amount of time it takes for this action to complete.
As you can imagine, a levy is less than ideal for the IRS. It takes time and resources to levy your bank accounts or property, so that is why it is a last resort over something like a payment plan. The best option is to explore all tax relief options before the IRS gets to the point of levying your assets.
When Does The Statute Of Limitations Start?
The statute of limitations starts on the assessment date if you don’t file your tax return with complete information or sign a substitute for return for the IRS to assess your taxes for the tax year. This means that to avoid this process, it is a good idea to mind the date of assessment and do something to begin tax payments before that date.
Exceptions and Rules Surrounding The IRS Statute Of Limitations On Tax Debt
There are many exceptions and rules surrounding how long you have to pay off debts owed to the IRS. The IRS gets a 10-year timeframe to collect your tax debt, but this does not stop it from assessing taxes; it will stop any collection efforts after that period.
The time does not count when fraud or deceit is involved in filing for bankruptcy protection. Or if you knowingly falsified information on your return form for someone else’s tax return to be accepted as yours (e.g., if someone else paid for most of your groceries so that they could claim them as deductions on their return).
The Time During Suspension Is Not Counted
When the IRS is legally stopped from the debt collecting process, that time isn’t counted toward the statute of limitations. When the IRS is stopped from taking steps against you, that time isn’t included in the 10 years. At that time, the 10-year time limit for the IRS freezes. So, the timeframe for collecting tax debts can go well over a 10-year period.
When You Declare Bankruptcy
Once bankruptcy is filed, the court orders the IRS to stop actions against you. As long as the case isn’t resolved, the IRS is on halt. But this time is excluded from the 10-year limit. So, the IRS will be given extra time equal to the case’s duration and six more months on top of that.
That’s why not every delaying technique might not always be helpful for you. It is important in cases like this to consult with a tax attorney to determine the best next steps. You could come out further ahead if you take the free consultation, and see what options are available to you.
When You Accept or Offer an Installment Agreement
The IRS debt collection time limit freezes when you accept or offer a deal to the IRS. So, the duration when they overview your request isn’t included in the statute of limitations. Once they decide to allow or refuse the installment agreement, the time limit resumes. This is an option that is in your best interest to pursue. The IRS has long reaches, and it is important to determine a plan for fighting the tax claims or paying them.
Offer In Compromise (OIC)
OIC means an agreement where the IRS and the taxpayer agree on paying a percentage of the full amount of tax owed. This amount is usually less than the original amount owed by the taxpayer. This is because there are cases of tax debts that will take too much time for the IRS to pursue and it makes sense for them to settle with an offer in compromise. There are high costs of IRS operations and procedures, and an offer in compromise eliminates that.
When you and the IRS engage in an OIC, the 10-year time limit pauses. The IRS doesn’t lose any time in legal cases and these other agreements.
Out Of Country Status
When a person with outstanding tax debt is outside the U.S for at least six months, the limitations period suspends. This means that if your plan is to leave the country to wait out the statute of limitations period to avoid unpaid tax debt you'll spending a period of time outside the United States for no reason. Hopefully, it is a nice vacation or something, because upon returning to the US there will be the tax debt waiting for your return. If you never return to the United States that might help you out, but then you won't be in the United States.
Final Thoughts
There are several options to work through tax debt.
- One is to use a tax relief expert to speak with the IRS and attempt to reduce the overall tax liability.
- An alternative is to get that tax professional to work with the IRS to set up an affordable installment repayment schedule that uses the Collection Statute Expiration Date (CSED).
- The third is having the tax relief specialist make a hardship application to the IRS. A tax expert may convince the IRS to halt recovery tactics like asset liens and income garnishments during that time.
IRS tax liability may be managed in tested methods. But failing to take any action is a typical mistake made by people incapable or unwilling to pay their taxes. Experience and analysis also demonstrate that persons who contact a tax relief specialist early on suffer from less monetary, professional, and interpersonal implications.
The IRS may pursue you if you don’t file your tax return or pay your taxes. If they do, they’ll have to follow the tax code’s time limits which are 10 years. As discussed earlier, the IRS has a 10-year statute of limitations on tax debt. It’s absolute, but there are important exceptions.
Make sure to find a free consultation with a tax attorney. They can help you determine the best plan of attack so you aren't waiting a long time to resolve tax issues. This could result in legal action in federal court, setting up a payment plan, or anything in between.
This is not tax advice or legal advice. Please consult with a professional.
